Betterment Review – Insider Investing Scoop

Betterment in a Nutshell

Betterment is all the rage for new investors, and for good reason. Betterment allows normal people to start investing in a proven portfolio of stocks and bonds. With no account minimum and affordable fees, your new Betterment account can be set up to accomplish your investment goals. Betterment’s intuitive website shows you how much you need to contribute for retirement, and you can see how your account will grow over the years in all kinds of market environments. With automated deposits, you won’t have to manage a thing. Betterment’s tax-loss harvesting, automated diversification, Tax-Coordinated Portfolio, and reinvestment of dividends will make your money grow. Finally, Betterment is offering new users 6 months commission-free! It’s affordable. It’s simple, effective investing for the internet generation. Our enthusiasm about Betterment is real. Read on to learn why.

The Betterment Story

Betterment was founded in 2008 by a guy named Jon Stein. He’s still CEO today. The company launched in 2010 after a big debut at TechCrunch Disrupt NYC. Betterment quickly scored $3 million in funding and has enjoyed steady growth ever since. Today, Betterment has more than 150,000 users, and manages more than $4 Billion. The press has been kind to Betterment, and you’ve likely seen glowing reviews in the Wall Street Journal, Forbes, and CNN. Betterment’s portfolio results have proved that this is more than hype. Betterment is here to stay, and they’re a major player that’s bringing a new generation into intelligent stock market investment.

Betterment’s Methods

Better Investment Performance: Independent investment managers usually charge more than 1% annually, and often fail to beat average (unmanaged) market returns. Betterment has “beaten the market” 88% of the time since its inception, using a portfolio of US and international stocks compiled by their panel of experts. Betterment’s portfolio grew a massive 101.3% between 2009 and 2014. In 2013 the platform boasted 11% growth, with a 70% stock allocation. Betterment’s new user promo makes the service free for a few months when you make sufficient deposit, and there are extra perks for those who refer other users.The Betterment platform performance couldn’t be better. Whether you’re using the platform on your desktop, your cell phone/smartphone, mobile device, or any other piece of tech you can fathom, Betterment runs like butter. It’s a 21st century platform and it just works.

Better Investment Philosophy: Betterment uses every possible method to save their users money and add value to the platform. These methods include free (!) standard offerings like Tax-Loss Harvesting, Smart Deposit Automation, and a Tax-Coordinated portfolio built on low-cost, high-performance ETFs.

Better Investment Options: It’s easy to create custom allocations and personalized investment goals. Users can also create a variety of account types, including taxable and non-taxable accounts. We have found every element of the Betterment system to be strong, an investment model that offers the best results to the most people.

FAQ and TL/DR

If you’re too busy to read the full review below, here are answers to your deepest burning questions about Betterment.

How Does Betterment Work? Betterment takes your money and puts it into low cost ETFs (thousands of stocks sold as a single unit, like individual shares) and stable US bonds. These funds grow steadily most of the time, along with the American and international markets these company stocks compose. Betterment uses a bunch of different methods and technologies to save you money and maximize your returns. Betterment is a great way to create wealth for retirement, for a distant financial goal, or simply to save money without losing value to inflation.

How Much Does Betterment Cost? Betterment has no minimum balance for new users. Users with up to $10,000 contributed will pay 0.35% annually, as long as they deposit at least $100 every month ($3/month otherwise). $10,001-$99,999 users pay 0.25% annually. $100,000+ users pay only 0.15%. Betterment lowered their fees considerably in 2012, from 0.3-0.9%. There are small fees for ETF purchases, always less than one tenth of one per cent of the purchased amount, automatically deducted from your balance. There’s a promotion for new Betterment users as well; the first 6 months are commission free.

How to Use Betterment. Just sign up, complete the simple account personalization process, deposit your funds, and watch your returns start to accumulate. Betterment is easier to use than competitors like Motif or eTrade, making it perfect for people just starting their investment journey.

Betterment Vs. Vanguard. You can technically get the same products from Vanguard for less money than Betterment. In most cases, the difference is very small. You’ll also have to perform all your own tax-loss harvesting, tax-coordinated portfolio service, re-allocation, re-investment, etc. Betterment is a new generation’s robo-advisor, and it looks the part. Attractive and intuitive, Betterment’s core investment model is likely to match or outperform any Vanguard portfolio you could dream up.

Betterment Returns. The past year has been mediocre for all investors, even for investors very careful of risks. Since its founding, however, Betterment has performed extremely well. The Betterment portfolio grew 11% in 2013. Every year of investment in index funds/ETFs will have wildly different ROI, but Betterment’s fundamentals are strong and have proven results over its short existence.

Can I Trust Betterment? Betterment is regulated and its users insured by the SIPC. It also has awesome scam/fraud protection and encryption. See their BBB rating here.

Can I Use Betterment in Canada? Can I Use Betterment in Australia? Sorry No, and Nope. They’re working on it.

Reviews of Betterment’s Departments, Products, and Offerings

There are a lot of aspects to Betterment’s service. This being the case, we’re going to review several different parts of the Betterment platform. Here’s what we’ve found after more than a year of use.

Tax-Coordinated Portfolio: Betterment’s newest feature adds a lot of value to the already great service. A Betterment-controlled Tax-Coordinated Portfolio is a way to automatically put expensive holdings into tax-protected accounts, and cheap holdings into taxable accounts. Of course, this only works for people who have multiple accounts with Betterment, but as you use the service longer and longer, this becomes more likely. Let’s say you have one taxable account, one Roth IRA, and one Traditional IRA. Betterment’s algorithms automatically swap out all the assets contained in these accounts until they are in an orientation that costs you the least amount of money possible. Betterment estimates annual savings of 0.48%, or 15% over 30 years. Betterment Tax-Coordinated Portfolio Review: 5 Stars

Customer Service: Betterment support rules. I have usually opted to use email to contact them, as my question had to do with settling up tax-loss harvesting for both myself and my wife. It took a little back and forth to make this happen (we had to make sure our TLH was in keeping with our tax filings), but Betterment was responsive and detailed in their emails. I always receive thorough replies in less than 24 hours. Betterment chat is now available, and representatives are available by phone 7 days a week until mid-late evening EST. There is even a special line for 401(k) customers. Betterment Customer Service Review: 5 Stars

Promotions: Betterment’s promotions are simple and steady. They’re not a company to offer flashy bells and whistles at every turn, but that’s not a problem. Your first opportunity for savings comes with your initial deposit. Users who deposit $5,000 get 3 months free; $25,000 get 4 months free; $100,000 get 6 months free. Thereafter, you can 30 days free by referring a single friend; a whole year is free once you invite 3 new users! Betterment Promo Review: 5 Stars

Tax-Loss Harvesting and Automatic Re-Allocation: Betterment offers free Tax-Loss Harvesting and Re-Allocation/Portfolio Balancing. This is a great benefit. Both of these could be accomplished by users through traditional platforms, but the time and costs involved would quickly eat up the savings incurred. Betterment’s algorithms accomplish these services automatically, meaning that your portfolio is never too light or too heavy in one asset class, and buying and selling decisions are done for maximal tax savings at the end of the financial year. Betterment TLH and Portfolio Balancing Review: 5 Stars

Betterment Methods and Returns: We’ll go into more detail elsewhere in this Betterment review, but suffice to say, Betterment’s methods and returns are strong. Based upon Modern Portfolio Theory, which values diversification, low cost ETFs, and the strength of entire markets over the hunt for individual stock winners – this is strong, conservative trading for long term success. Betterment’s returns are intimately linked to the overall health of the economy, but have “Beat the Market” many times over the company’s existence. Betterment Methods and Returns Review: 5 Stars

Overall Review: We like Betterment. It’s easy to use. It’s secure. It works. It’s teaching a new generation of people how to invest, and making it very affordable for them to do so. 5 Stars

Digging Deeper into Our Betterment Review

If you’re still reading, you want to understand the nuts and bolts of Betterment’s online platform. We’ve taken a lot of time compiling every bit of information we can find about Betterment, and have even used the service ourselves. We believe that Betterment will provide an excellent investment strategy for a lot of our readers. Below, we’ll explain our reasons why.

How Much Does Betterment Cost?

The first thing many readers look for in a Betterment review is an explanation of price structure. Fortunately, this is one of Betterment’s best features. Until 2012, Betterment’s fees were pretty high: 0.3%-0.9% annually. The service finally grew to a size that these fees could be slashed to only 0.15%-0.35%. It’s hard to beat this price point in the robo-advisor marketplace. If you manage to find cheaper offerings, it won’t be by much. Betterment also has no minimum balance, unlike competitors like Vanguard, making it easier for more people to begin investing.

Betterment divides users into three fee level groups, based on account value: Users with $0 to $10,000 pay $3 a month, or 0.35% annually, with an automated monthly deposit of at least $100; Users with $10,001 to $99,999 pay 0.25% annually; Users with $100,000 or more pay only 0.15%. Users with more than $500,000 get free investment consultation from Betterment’s advisors.

Betterment eliminated the transaction fees common to older investment platforms. The only other fees you’ll pay are for ETFs purchases, which are well less than one tenth of one per cent (.06% for Vanguard Total Stock Market Index ETC (VTI), for instance). ETFs are cheaper to trade than equivalent mutual funds.

If you don’t want to do the math in your head, Betterment would charge about $17.50 in yearly fees for an account with $5,000. As independent advisor/manager commonly charges 1-2% ($50-$100), it’s hard for anyone to complain that Betterment isn’t remarkably affordable. New users get up to 6 months free, depending on initial deposit, and receive a free month every time they refer someone else to the service.

What Does the Betterment Portfolio Look Like

Betterment gives the user a strong selection of stocks and bonds, chosen for great historical performance and affordability. The user selects their own stock/bond allocation. Bonds are pretty stable. They rarely experience strong losses, but don’t grow much either. They’re a way to save money while earning more than the value lost to inflation. Allocating investment funds to bonds is a way to “lock in” these funds, while money allocated to stocks allows for much bigger growth potential. Betterment’s current portfolio offerings are as follows:

Stocks

Bonds

US Total Stock Market
Vanguard U.S. Total Stock Market Index ETF (VTI)

What Does the Betterment Platform Offer?

Betterment is really easy to use, but still offers a lot of powerful tools to understand your investments and save money.

Betterment RetireGuide – This is a really helpful visualization feature, designed to show you how much money you’ll have available every month during retirement, compared to how much money you’ll need. Comfortable retirement spending is all about monthly spending. All of your savings and assets (investments, income, tax rates, spousal holdings, etc.) will be taken into account. As you continue to build wealth and investments, you’ll see notice a shrinking gap between what you have and what you need.

Security – Betterment is regulated by the SIPC, protecting users with up to $500,000 in invested funds, in the case of fraud or mismanagement. Betterment manages any fraud recovery committed by outside parties. The whole system employs 256-bit SSL encryption. Betterment won’t sell your information – they promise!

Visualization Tools – Betterment looks cool. The platform has a lot of visual resources to help you understand your investment better. When you make a deposit, you can immediately see how much it is likely to grow in various market climates, over any number of years. You can also see how returns are likely to differ with different allocation splits. It’s very helpful to “See” how simple changes to your investment goals are likely to play out over decades. Seeing the promise of big returns is also very exciting, making it easier to keep up the contributions necessary to hit your financial marks.

Automatic Re-Allocation – Betterment investment reinvests dividends and uses other tools to keep your investments on track. Given time, this can change your stock/bond allocation. Betterment automatically fixes the discrepancies. You can also automate your allocations to change over time, opting for a more conservative stock/bond ratio as you get closer to retirement.

SmartDeposit – SmartDeposit is a really cool feature. If you’ve got money sitting in checking or savings account, you’re losing value to inflation. Invested, these funds will almost certainly outpace inflation, preserving and growing your wealth. With SmartDeposit, users tell Betterment how much money they need in their checking and/or savings account. If the amount exceeds this benchmark, Betterment will invest the difference. Don’t worry, they’ll ask you every time, giving you at least 24 hours to confirm or deny the transfer.

Tax-Loss Harvesting – This one is huge. Tax-Loss Harvesting works like this: Even with tax-deferred accounts, investors will eventually have to pay capital gains taxes on the money they make. Tax-Loss Harvesting sells securities that lose money. This “locks in” the loss. That loss can be written off on your capital gains taxes, lowering your tax bill. Betterment automatically replaces the security with something that fills the same portfolio role. Without harvesting, capital gains are determined starting at the lowest point in a security’s value history. With accounts in the $50,000-$100,000 range, we’re talking thousands of dollars in tax savings. Tax-harvesting is a pain to do on your own, so much so you almost certainly won’t do it. It’s expensive to pay someone else to do it for you. Betterment used to offer TLH only to users with more than $50,000 invested. But now it’s free for all.

TaxMin Lot Selling – When a user withdraws money, Betterment sells shares to get the cash. These sales trigger capital gains taxes. But not all shares trigger the same tax levels. Betterment sells the shares that cost you the least.

Smart Rebalancing – Betterment reinvests dividends and cash flow. These share purchases result in lower capital gains than those purchased with fresh contributions.

How Do I Sign Up For Betterment?

If you’ve read this far, you might be ready to sign up for Betterment. Good news – it’s really easy. New users input all the usual information, then start asking some questions about their investment goals (risk tolerance, time-specific goals, etc.). You’ll be asked to link to your financial institution, which can be completed in minutes. New funds show up in just a couple of days, at which point your account is up and running. Users transferring IRAs and other accounts from other brokers will usually see the accounts appear in 2-3 weeks.

There’s no minimum balance to begin, but Betterment will give you 6 months free if you put in $50,000 right away. There are smaller free periods for smaller initial deposits. Once your account is humming along, Betterment will send you a series of helpful emails, detailing Betterment features and making sure you’re getting the most out of the service. Betterment understands how to make this helpful, not annoying, a delicate balance Vanguard hasn’t figured out, IMHO.

Betterment IRA Review, and Other Account Types

Because so many users start Betterment IRAs, this account type is worth a little extra attention. Users can choose between a Traditional IRA, a Roth IRA, and a SEP IRA, depending on tax deference preferences. Betterment’s visualization tools make it easy to see the advantages of each tax model. In addition, users can start Taxable Accounts, 401k, Trust Accounts, and 529 Plans.

Real Users Review Betterment

“Alberto Lo” had this to say on NerdWallet:

‘I’ve opened up a Betterment account and I can vouch for the ease of use. It is literally, deposit your money and watch it grow. Since I’ve opened my account 3 weeks ago, I’ve already earned 6.7% on my Roth IRA. I would recommend this site for the novice investor.’

“LM” had this to say at Investor Junkie

‘I would contend that a more advanced investor can take further advantage of Betterment through the use of “bucket accounts.” For my mother, I created a 1 year, 3 year, 5 year and 10 year horizon portfolios within Betterment. Money that she might need in the next the next 12 months were placed in a “safety net” and then with each longer time horizon, an increasing use of stocks was employed.

While I could put together a collection of ETFs and mutual funds, the ease of setting up specific time horizon portfolios and let them be managed automatically is a useful way of creating a blended investment portfolio.’

“Michael” had this to say at Investor Junkie

‘I am really starting to warm up to this. Most active management will charge you 1% and probably under perform.’

“Jimbo” had this to say at Mr. Money Mustache

‘I’m no expert as all of my money is in retirement vehicles (and will be until I have maxed them all out), but 0.15% is a very small price to pay for services that aren’t trivial to do on your own, take the worry out of it anyway, and increase your return in non-retirement accounts. If you want to spend your time rebalancing (easy) and tax loss harvesting (not as easy), then go for it.’

“Alex” had this to say at Mr. Money Mustache

‘I’ve been using Betterment for the past eight months or so. I really like the automatic rebalancing based on the percentage of drift rather than on checking my portfolio at a certain interval. Betterment also lets you set up automatic deposits super-easily. A big chunk of every paycheck goes off into my betterment account by itself and gets invested in something like eight different ETFs without my having to lift a finger. Also, to answer a comment many have made: they do let you set up tax free accounts (I have a taxable account and a separate Roth IRA). They put you in different ETFs if you’re in a tax free account (not MUB, for instance, since there would be no point). MMM’s post doesn’t mention this, but Betterment also has a slight “value tilt” compared with competitors like Wealthfront, which was appealing to me.’

Conclusion

You’ve just read lots of words about Betterment investing. By now, you know we’re enthusiastic about Betterment, and that we have every reason to be. To sum up, Betterment is affordable and effective. It’s so easy to use, and so effective at growing wealth, that new investors are signing up by the thousands. We love how responsive Betterment is to user feedback, how quick they respond to our emails, and how many useful features and improvements they’ve added in a short time. We only expect Betterment to get better. Even now, they’re a true leader in the robo-advisor and modern investment landscape.

47 Comments

Great review Joshua. I started with Betterment and I really enjoy it. I actually talked with a few of their employees that came from iShares and Vanguard because they like the platform so much. I know that their fees are a little higher, but I have really found some good success with them and recommend them to anyone looking to get into investing.

Good to hear you have had success with them Grayson. I’d definitely give them a shot but I think they might be only available for Americans. The hands free approach would be pretty convenient for many people.

Exactly. Not everyone has the time or desire to learn about investing and keep on top of it all. So there needs to be an option where people can let a company choose which specific investments they are purchasing.

It does sound like a solid platform for anyone that is new to investing. Choosing funds can be quite difficult for a beginner to tackle on their own, especially knowing that you have to keep an eye on all of those selections.

Nice review! I know nothing about investing so far so this indeed sounds like something I could give a try… not sure how good of an idea would be for the future, though because probably knowing what you’re doing with your money is the best thing to do :))

Yes, in the long term, it may be best to learn to handle investing on your own. That isn’t practical for everyone though. For some people free time is at a premium and they’d gladly pay fees to save some time.

Definitely looks like a suitable way to invest for those who don’t want to dedicate the time to learning about direct investing. The slightly higher fees make sense if the alternative was to not invest at all due to not having the knowledge.

Thanks for the review Josh! I never heard of Betterment until this morning. Fees can add up so I guess you have to find out if it makes since for you to use. From the comments seems like people have had a good experience with them. I get free trades right now so I like where I am at for the moment. But you never know.

I really recommend Betterment to folks who can’t put up the large starting balance for a lower fee account like Vanguard. When saving for a large balance requirement investment account, it can be tempting to use that money for something else (oh look, my friends are going on a cruise, I can postpone starting that Vanguard account…) so having that money already invested ensures it can’t be used for non-retirement fun.

With all of the positives involved with Betterment, there are costs. Don’t get me wrong, it is a great product. However, a great deal of my investing success (not just in equities) is in minimizing costs or eliminating them completely. This product is perfect for someone with limited time and knowledge of picking stocks and ETFs.

Yes a serious investor should be very concerned with their investment costs. Early on though, most people just don’t have the time or expertise to properly manage their portfolio. So paying those costs could be very worthwhile in that scenario.

This is the first time I’ve heard about the Betterment account, I love reading your reviews and this is something I’m definitely going to check out. While were on the subject of reviews have you considered review UK products? I only say this because I’m from the UK and there are a lot of people here who enjoy your reviews. Anyway, great post.

Does using Betterment’s software actually aid customers in becoming more educated investors so that they eventually can transition to a more self-directed tool? Put another way, does Betterment give you fish AND teach you to fish?

As betterment sounds to be great platform for those who want to enter into investing world without much hiccups or stress. Hope there is no hidden factor with it, else it will soon lose its ground. Since everyone wants to have safer mode of investment with great future return.

I’ve decided to finally sign up and let the professional do the job. Even though there are cost with betterment. I still think it’s a LOT cheaper than leaving my money at E-trade and doing the trades myself.

Thanks for this review. It seems like more and more apps/companies/brokerages are looking to entice 20 somethings to invest. While I like the idea of making investing simple and somewhat automated, I think it can be easy for anyone to start on their own and build their own dividend income portfolio with the likes of Loyal3 or Sharebuilder. Easy, no/low fees and buy 20 or so solid dividend payers, reinvest and just let time compound your dividend income. Have you seen Acorns? I wrote about them on my blog. They take your excess change from everyday purchases and buy ETF’s for you.

I had requested a demo via their website 3 days ago and never got a response. I called to follow up and the excuse was that they have been overwhelmed with requests and cannot keep up. I can’t imagine what customer support would be like once I pay for the product. Typical growth company; too much marketing but not enough infrastructure to handle the workload. I suggest that anyone condsidering this company hold off until the dust settles.

I’ve been using betterment for 2 years. I was testing their goals, which really aren’t goals but instead accounts, and I unintentionally deleted my goal or account and it transferred the money back to my account and lost the performance data. Their system does not stop simple mistakes and the result was pretty serious. I was pretty upset. Not sure I’m going to use them again. Their site isn’t ready to serious use if they allow a flaw like that.

I’m not a proponent of diversification as a way to reduce risk. But Betterment is a good option for people who are just starting out.

One advantage is the ability to invest in bonds. Investing in the right bonds can provide safe yearly returns with less risk that fluctuating big name stocks.

Their tax loss harvesting feature is a good way to perform better on after-tax returns.

If you have the knowledge to do your own research into equities and assets, it’s better to invest into stocks yourself, and write calls every month, in order to capture extra income. That’s my modest take.

Wow. What misunderstandings I’m reading about betterment. First, their fees are tiny compared to the low fees I pay elsewhere. Second, their customer support is awesome. You get s human fast, they are knowledgeable and results oriented.

I am a seasoned investor; currently, my primary accounts are elsewhere but I opened a small account at betterment to try it. I like it.
Hafenz

Hi Danny,
If you saw no or negative returns in 2015 you were definitely not alone. The market was tough last year. I managed to scrape by with 3% over all growth but only because I have a very diverse portfolio with some great holdings in healthcare IT stocks. Basically last year was not kind. My year-to-date performance is about 3 times as high without making any major changes. My holdings are currently not in Betterment but I am looking at taking my taxable investments over to them. I rang up some taxable activity last year and would like to see if they can do better than I did with tax harvesting.

I am seeing several comments saying this is great for new investors who don’t know much about investing. I looks to me like it could be good for any investor especially if you have a busy life and can’t spend time constantly researching your portfolio. I liked the comments by LM which were included in your review about creating buckets in the safety net goal. It sounds similar to a ladder strategy. I am considering starting an account using the cash sitting in my taxable brokerage account.

Really nice review – I think this is a real gem for newer investors and the fees are very reasonable. It is amazing what your money can do when you don’t have brokers reaching into your pocket all the time to fund their high rise NYC apartments!

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